Measure to ease Dodd-Frank swaps reform clears House

The House of Representatives easily passed a bill today allowing banks to remain in most aspects of the swaps business despite White House concerns that it is premature and potentially disruptive to tinker with Wall Street reforms.

Sponsored by Rep. Randy Hultgren, R-Winfield, the heavily lobbied amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act is supported by banks, farmers, manufacturers and other users of derivatives, as well as the Illinois Chamber of Commerce and the Illinois Bankers Association. Chicago-based futures exchange CME Group Inc. has not taken a position on the bill.

Mr. Hultgren's bill would not affect the so-called Volcker rule, which prohibits banks from dealing in swaps for their own accounts, and it would continue the ban on banks dealing in exotic swaps based on structured financial deals, which led to the financial crisis.

But it would exempt swaps dealing with relatively straightforward things like farm and non-farm commodities, equities or credit, sometimes used by farmers and manufacturers to hedge risks.

“This section of (Dodd-Frank) was rushed when it was added on,” Mr. Hultgren said. “Although it was aimed at Wall Street, it really affects Main Street more.”

The Dodd-Frank Act requires banks to “push out” their swaps business to a non-bank affiliate, protecting the federal deposit insurance system if another financial meltdown is triggered by swaps transactions that go bad. But bank regulators expressed concern when Congress was working on Dodd-Frank reforms that the swaps rule went too far.

While the bill was expected to pass, the strong 292-122 vote may now encourage action by the Senate, where similar legislation still is in committee.

“I am highly doubtful these bills will be considered in the Senate, given that Senate Republicans would rather eliminate Dodd-Frank altogether than make it more workable,” said U.S. Rep. Collin Peterson, D-Minn., the senior Democrat on the House Agriculture Committee.

That committee passed the amendment on a bipartisan 31-14 vote last March, with Mr. Peterson and Illinois Democrats Cheri Bustos of East Moline and William Enyart of Belleville among those opposed. Rep. Rodney Davis, R-Taylorville, voted for the measure.

“The bill would gut a provision in the Dodd-Frank Act requiring banks to spin off swap activity that is not directly related to their banking business,” Mr. Peterson said at the time. “Without this provision, I fear that we could find ourselves in a situation where taxpayers would again be on the hook for bailing banks out of a mess they made themselves.”

Members of the Agriculture Committee who voted for the bill received more than seven times as much in campaign contributions from the four biggest commercial banks as those who voted against, according to Maplight.org, a website that tracks the influence of money on politics.

The bill passed the House Financial Services Committee by an even wider margin — 53-6 — in May, with Rep. Bill Foster, D-Naperville, joining Mr. Hultgren in voting "aye."

In a statement, the White House opposed the bill but stopped well short of promising to veto it.

“Regulators have made meaningful progress toward full implementation of Title VII of Wall Street Reform,” the administration said. “While these efforts are ongoing, legislation to amend Title VII is premature and could be disruptive and harmful to the implementation of these critical reforms. Regulators should be allowed to finish their work before determinations are made as to what changes, if any, might be necessary in certain areas to improve the effectiveness of these reforms.”

“That may be the next best thing” to an endorsement, said Mr. Hultgren, noting the lack of a veto threat. “It's more of a timing thing, is how I read it.”